The Financial Markets Authority may take regulatory action against three financial services firms after its latest probe into replacement life insurance. BusinessDesk's Paul McBeth reports.
The market watchdog has been concerned about the sale of replacement life insurance for several years, largely around sales incentives for advisers which may put their interests at odds with those of their customers.
The FMA's latest review spanned 11 large firms with qualifying financial entity (QFE) status, meaning they take responsibility for the sales practices of their advisers, of which just two had internal policies and processes that were high quality and designed with the customer's interests in mind.
The regulator said six firms have taken steps to mitigate risks linked to their replacement business, while three others might not be meeting their legal obligations and may face regulatory action.
Liam Mason, FMA director of regulation, said the watchdog has been airing concerns about life insurance and replacement policies in particular for several years.
"It's pretty disappointing that a small number of firms don't seem to have got the message and don't seem to pay attention to that," Mason told BusinessDesk. "We're seeing firms that identify the risks of replacement business, but most of their policies in place seem to be designed as risk management tools for them rather than to help their customers."
The FMA has already written two reports on the role of financial advisers in the sale of replacement insurance policies and is working with the Reserve Bank on a wider culture and conduct review of life insurers and banks after a Royal Commission into financial services across the Tasman unearthed some unsavoury practices in Australia.
Mason said while the review only covered replacement insurance, its findings were applicable across all products to ensure adequate consumer protections. It recommended QFE insurers reassess whether their internal definitions and sales processes provide enough consumer protection. The FMA also said QFEs' staff conduct assessment procedures need to be customer focused rather than managing their own risk.
The regulator is considering more reviews of the insurance sector, with concerns that vertical integration where a firm makes a product and sells it "sets advisers up to fail in complying with their obligations".
The 11 firms covered in the report were AMP Services, ANZ Bank New Zealand, Asteron Life, Bank of New Zealand, Cigna Life Insurance, Farmers' Mutual Group, Medical Assurance Society New Zealand, Partners Life, Sovereign Services, NZ Automobile Association, and Westpac New Zealand.
Lobby group the Financial Services Council said separately the mixed findings of the review set "a clear challenge from the FMA for the industry to improve practices related to replacement insurance transactions".
"Industry leadership and self-regulation also has an important role to play in lifting standards within the sector," chief executive Richard Klipin said in a statement. "To this end the FSC board, after an exhaustive two year process, has this month signed off on an inaugural FSC Code of Conduct which will be launched in September."